Highlight on Hawaii: State requests groundbreaking ACA waiver

Hawaii is the first state to request a waiver of certain Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) provisions pursuant to section 1332 of the ACA. On September 9, 2015, the state began the process to request a 1332 waiver permitting it to retain “all aspects of the innovative Hawaii Prepaid Health Care Act,” which requires non-government employers to offer a certain level of health insurance coverage to employees working at least 20 hour per week, and waive those provisions in sections 1301, 1304, 1311, and 1312 of the ACA that “diminish” the state law. By waiving participation in the Small Business Health Options (SHOP) exchange and retaining its existing state law, Hawaii believes it will provide employees with higher quality health coverage than that available under the ACA and reduce administrative burdens.

Prepaid Health Care Act

The Prepaid Health Care Act (PHCA) (HRS Ch. 393), enacted in 1974, is exempt from the Employee Retirement Income Security Act of 1974 (ERISA) (P.L. 93-406) and requires all non-government employers in the state, regardless of size, to offer health insurance benefits to any employee who works at least 20 hours per week for four consecutive weeks. The ACA, by contrast, only requires large employers to offer insurance, and only to employees who work at least 30 hours per week. Pursuant to the PHCA, employees must accept the coverage offered, unless they can demonstrate coverage from another source. The PHCA also caps employees’ premium contributions at the lesser of 1.5 percent of gross monthly wages or 50 percent of the total monthly premium; in practice, this has defaulted to 1.5 percent of gross monthly wages. The ACA, however, can require employees to pay up to 9.5 percent of household income. The PHCA also requires a level of health benefits with a roughly 90 percent actuarial value, which is the equivalent of an ACA platinum-level plan. The ACA, however, permits employers to offer bronze-level plans, which have a 60 percent actuarial value. The PHCA permits employers to offer the equivalent of gold-level plans, but only if they cover at least half of the cost of dependent coverage. In September 2014, the Hawaii Health Information Corporation noted, “92 percent of all adults ages 18 to 64 in Hawaii have lived their entire adult lives during the PHCA era and therefore cannot conceive of employment without health insurance coverage.”

1332 waiver

ACA section 1332 permits states to request a state innovation waiver for plan years beginning on or after January 1, 2017. Applications must include a comprehensive description of the waiver plan, along with a 10-year budget, and must allow for a public notice and a comment period that permits a “meaningful level of public input.” In its draft waiver application, Hawaii described the state’s unique position regarding insurance coverage. At the time that the ACA was implemented in 2014, the number of uninsured in Hawaii was thought to be 100,000; as of September 2015, the uninsured rate was thought to be less than half that amount.

The low number of uninsured residents was a main reason that the cost of Hawaii’s state-based marketplace, the Hawaii Health Connector, outweighed the benefits, and the Connector was deemed unsustainable. The state switched to a supported state-based marketplace beginning with the November 2015 open enrollment period. Not even 1 percent of eligible small businesses–250 employers with 25 or fewer employees–in the state agreed to use the Connector, as they were already providing insurance in accordance with the PHCA. The marketplace offered little competition, since only two health plans offered coverage in the first year of the SHOP exchange, and only one offered coverage during the second year. As of June 2015, small employers began enrolling directly with health plans rather than enrolling through the marketplace. In the state’s words, “SHOP adds nothing in terms of value or incentives and has served only to increase small business insurance costs.” Hawaii believes a SHOP waiver will foster continued cooperation among stakeholders.

Draft application

The state is specifically requesting a waiver of the following ACA provisions:

  • 1301(a)(1)(C)(ii), regarding the availability of at least one silver-level plan;
  • 1301(a)(2), regarding the inclusion of multi-state and co-op plans;
  • 1304(b)(4)(D)(1) and (ii), permitting continuation of participation for growing small employers;
  • 1311(b)(1)(B), establishing the SHOP exchange;
  • 1311(f)(3)(B), authorizing eligible entities, such as state agencies, to carry out exchange responsibilities;
  • 1312(a)(2), allowing employers to specify plans within certain levels and allowing employees to choose plans within those levels; and
  • 1312(f)(2)(A), defining “qualified employer” and eligible “full-time” employee.

The state has not yet developed a 10-year budget, however, it is confident that its plan will reduce costs for all parties, including employees and insurers.  Employers, for example, will no longer be subject to ACA-imposed fees added to premiums. Significantly, “the federal government’s administrative burden will be reduced the most,” as it will no longer be responsible for general oversight.  In place of the small business tax credit authorized by ACA section 1421, Hawaii is asking that it receive $46 million in funds for the five-year waiver to be deposited in the state’s Premium Supplementation Fund. According to the state, the fund, which is locally administered, serves the same purpose as the ACA tax credits and is more likely to be utilized by small businesses.

Because Hawaii has operated under the PHCA for more than 40 years, it believes it can implement its plan as soon as permissible.  As a result, it is asking to implement the waiver on January 1, 2017, the first day permitted under the ACA.  Other states may not be able to implement such an undertaking as quickly.  However, states considering waivers will likely monitor Hawaii’s progress to determine how HHS responds to such requests, whether the waiver is granted, and, if so, how successful Hawaii will be in a post-waiver world.